China loses WTO bootlegging lawsuit

Key part of interim decision remains unresolved

The U.S. has won the majority of its bootlegging lawsuit against China, but a key part of the World Trade Organization’s interim decision remains unresolved, according to a trade official familiar with the case.

The U.S. complaint, filed with the global trade body last year, charged three breaches of international agreements to which China is party regarding intellectual property protection:

allowing seized counterfeit goods to be sold after the fake label had been removed;

setting the legal threshold too high for what constitutes actionable piracy.

The WTO agreed with the first two charges but questioned whether the third could be determined effectively.

Originally, Chinese authorities said 1,000 or more bootlegged copies were necessary to trigger criminal prosecution for piracy. But shortly after the Bush administration filed the WTO complaint, China dropped the threshold to 500.

Still, the interim decision, issued to both countries late last week but not yet made public, questioned whether 1,000 or 500 was a metric that accurately reflected market value relative to a statutory definition of criminal activity.

Since the report remains confidential, the Office of the U.S. Trade Representative is not commenting. But the trade official told Daily Variety that the U.S. “won 2.8 out of 3. The WTO essentially said they agree in principle that the threshold was too high, but they’re nebulous on what the threshold should be.”

Both countries will file comments on the interim decision with the WTO, which is expected to release the final decision publicly some time in November. The U.S. will likely focus its comments on establishing a legal threshold to trigger prosecution.

Both the Motion Picture Assn. of America and the Recording Industry Assn. of America, which supported the WTO suit against China, declined to comment pending USTR review of the interim decision.